Good Recordkeeping Key to Small Business Success

How important is good recordkeeping to a small business?

According to the IRS, it helps small business owners make sure their business stays successful.

Good recordkeeping helps business owners:

• Monitor the progress of their business
• Prepare financial statements
• Identify income sources
• Keep track of expenses
• Prepare tax returns and support items on those returns

Recordkeeping System

Small business owners can choose a recordkeeping system that fits their business.

They should choose a system that clearly shows income and expenses.

With the exception of a few cases, the law does not require special kinds of records.

How long business owners should retain documents depends on several factors, the IRS says.

These include the action, expense, and event recorded in the document.

Record Retention

The IRS generally recommends that taxpayers keep records for three years.

A good recordkeeping system includes a summary of all business transactions.

Businesses usually record these in journals, ledgers, or electronically. Owners should know that all requirements that apply to hard copy books also apply to electronic business records.

Small business owners must be able to prove expenses to deduct them on tax returns, known as the burden of proof.

Business owners should keep all records of employment taxes for at least four years, the IRS advises.

If these are paper records, they should be stored in a secure location, preferably under lock and key, such as a desk drawer or safe, the IRS advises.

If these are electronic records, there should always be a back-up, in case the computer crashes and records are lost.